Chapter 10: Property, Plant, and Equipment and Intangible Assets: Acquisition

Which of the following is true regarding a nonmonetary exchange of assets?

A gain or loss is recognized in difference between the fair value and the book value of the asset give up

An asset is exchanged for another asset and cash is received in the transaction. The fair value of the assets are not determinable. At what amount should the new asset be recorded?

Book value of the asset give up less the cash received

An asset is exchanged for another asset and no cash is exchanged in the transaction. The fair value of the assets are not determinable. At what amount should the new asset be recorded?

Book value of the asset given

The purchase price and all costs to bring an asset to its desired condition and location for use should be ______.

Capitalized

A ______ is an exclusive right of protection given to a creator of a published work, such as a song, film, painting, photograph, or book.

copyright

The basic principle for valuing assets in a nonmonetary exchange is to value the asset received at

fair value

An asset, other than financial assets, that has no physical substance is called a ______ asset

intangible

Accounting for land improvements requires that the costs of land improvements are

-capitalized -depreciated or amortized over te periods benefited

Clarion purchases land and prepares it for use. Which of the following items should be capitalized as land improvements?

-cost of driveways -cost of lawn sprinkler system -cost of sidewalks

Sarah purchases land to be used for a new storage facility. Which of the following items are capitalized in the cost of land?

-costs to remove an old building -legal fees to secure title -real estate agent commissions

From a financial reporting perspective, property, plant, and equipment and intangible assets exhibit the following characteristics

-long lived -revenue-producing

A ______ is the exclusive right to manufacture a product or use a process granted for a period of _______ years.

-patent -20

Indicate which costs would be capitalized as part of the cost of manufacturing equipment.

-set-up cost -insurance during transit -freight-in

Which of the following are classified as natural resources?

-timber tracts -mineral deposits

A nonmonetary exchange is considered to have ________ substance if the future cash flows will change as a result of the exchange

commercial

Obligations associated with disposition of property, plant, equipment, or natural resources are called

asset retirement obligations

When a company receives an asset from an unrelated party by a donation, the assets are valued at _______ value.

fair

When assets are acquired in a noncash transaction, if the fair value of the noncash items given is not clearly evident, then the ______ value of the assets received is used to record the assets

fair

The exclusive legal right to manufacture a product or to use process is a _______

patent

Polly Corporation purchases land for $200,000. Polly incurs the following costs associated with the land acquisition: Property taxes for current year: $4,000 Delinquent property taxes: $8,000 Commission to broker: $14,000 Cost of grading: $2,000 Cost of land improvements: $12,000 What is the amount that Polly should capitalize the land account?

$224,000

Ayesha Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase Price: $50,000 Freight and Handling: $2,000 Concrete pad for equipment: $5,000 Maintenance during year: $3,000 Shipping Insurance: $400

$57,400 50,000+2,000+5,000+400

Which of the following items should be capitalized as land improvements?

-Cost of sidewalks -Cost of Parking Lots -Cost of Fences

Which of the following costs should be capitalized in the costs of acquiring a building?

-Legal fees to obtain title -Realtor Commissions -Remodeling Building

Larry purchases land to be used for a new corporate headquarters. Which of the following items are capitalized in the cost of land?

-Title Insurance -Grading the land -legal fees to secure title -Costs to remove an old building

Which of the following items are intangible assets?

-copyright -trademark -patent

Because it is difficult to estimate the future value of research and development, FASB requires that research and development costs be treated as

An expense on the income statement

A company issues its equity securities to purchase land. The common stock is not publicly traded. The best indicator of fair value is the

Appraised value of the land

A(n) ______ is protected by law and gives the creator of a published work the exclusive rights to reproduce and sell the work for the life of the creator plus 70 years.

Copyright

A company acquires equipment by signing an interest-bearing note payable for $20,000. The interest rate is realistic so the company will record

Debit Machine $20,000 Credit Note Payable $20,000

Donated assets should be recorded on the balance sheet at what amount?

Fair Value

When a company acquires assets by issuing debt or equity securities, the first indicator of fair value is the

Fair value of the debt or equity securities given

The two important accounting issues related to self-constructed assets are

Interest Charges and Allocation of overhead

The FASB requires research and development costs to be expensed because

It is difficult to objectively determine the future benefits

______ ______ are physically diminished as minerals and other materials are extracted from the ground and are sold or used in the production process, whereas equipment, land, and buildings have physical characteristics that remain unchanged.

Natural resources

A company acquires equipment by signing an interest-bearing note payable. If the interest rate is realistic, the company will record the equipment at the

Present value of the note payable, which is the face amount of the note

Which of the following should be included in the cost of buildings?

Real estate commissions relating to purchase of building

Berner Mining Company estimates that after it completes extraction of valuable metals from a tract of land, $245,000 will be necessary to return the land to its original condition. This cost is considered a(n)

Restoration Cost

Manfred Mining Company is required to restore a piece of land to its original condition after it completes extraction of precious metals. From a financial reporting perspective, the related obligation is referred to as an asset

Retirement Obligation

A company issues its equity securities to purchase land. The common stock is publicly traded, and both the value of the stock and the land is known. The best indicator of fair value is the value of the

Stock

When assets are purchased in a group for a single sum, it is referred to as a

lump-sum purchase

A ______ is an exclusive right to display a word, slogan, symbol, or emblem that distinctively identifies a company, product, or service.

trademark

Accounting for land improvements requires that the land improvements are capitalized and then _____ over periods benefited by their use.

Depreciated

A company acquires a mine and incurs costs such as expenditures to build tunnels and shafts before production may begin. These expenditures are classified as

Development Costs

A contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time is called a

Franchise

A nonmonetary exchange has commercial substance if the ______ will change as a result of the exchange.

Future Cash Flows

In a lump-sum purchase of assets, the cost must be allocated to the individual assets because

The assets have different useful lives

True or false: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use.

True

A company's reputation and clientele, its trained employees, and favorable business location may give rise to _______.

goodwill

An asset representing the value of a company over and above its identifiable tangible and intangible assets is referred to as __________.

goodwill

Norbert Company has an exclusive right to display a specific symbol and routinely uses it on its promotional materials, company letterhead, and other media to distinguish its company from other firms. This right is referred to as a

trademark

Long-term assets are typically classified in one of these two categories:

-property, plant and equipment -intangible assets

Expenditures needed to get land ready for its intended use should be:

capitalized as part of the cost of land

Sherman Corporation purchases land for $100,000. Sherman incurs the following costs associated with the land acquisition: Property Taxes for current year: $3,.000 Cost of Removing old building: $7,000 Title Insurance: $1,000 Cost of Grading: $4,000 Delinquent property Taxes: $2,000 What is the cost that Sherman should capitalize in the cost of land?

$114,000 100,000+7,000+1,000+4,000+2,000

Collin Corp. purchases equipment to be used in manufacturing. Given the following expenditures during the year, calculate the amount capitalized as the cost of equipment. Purchase Price: $100,000 Freight and Handling: $8,000 Trial Runs: $6,000 Maintenance during Year: $3,000 Employee training during year: $4,000

$114,000 100,000+8,000+6,000

Which of the following items should be capitalized in the cost of equipment?

-freight to deliver the equipment to its location -installation and testing of equipment -insurance on equipment during shipping -purchase price

When a company receives an asset from an unrelated party by a donation, the assets are valued at fair value and

Revenue is recorded

A ________ is a contractual arrangement in which one entity grants the purchaser the exclusive right to use the tradename, formulas, and product rights within a specific geographic area for a specific period of time.

franchise